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Thu, 17 Aug 2017 21:08:38 -0600Ingenuity and Hard Worken-gbProposed Measures to Address Income Sprinkling, Part 2http://kdprofessional.ca/blog/proposed-measures-to-address-income-sprinkling-part-2
http://kdprofessional.ca/blog/proposed-measures-to-address-income-sprinkling-part-2In this second part of our blog series, we are looking further into the last 2 proposed measures to address income sprinkling.

The Government is concerned with the use of family trusts to facilitate arrangements under which the LCGE limits of multiple family members of a family may be used to reduce capital gains tax.

There are 3 proposed measures to address LCGE multiplication.

-Individuals would no longer qualify for the LCGE in respect of capital gains that are realized, or that accrue, before the taxation year in which the individual attains the age of 18 years.

-The LCGE would generally not apply to the extent that a taxable capital gain from the disposition of property is included in an individual’s split income.

-Gains that accrued during the time that the property was held by a trust would no longer be eligible for the LCGE (subject to certain exceptions).

These proposed measures would apply to dispositions after 2017.

2.Supporting measures to improve the integrity of the tax system in the context of income sprinkling:

Supporting measures including

-Introduction of tax reporting requirements with respect to a trust’s tax account number that are similar to those of corporations and partnerships.

-Introduction of measures so that the T5 slip requirements with respect to interest amounts apply to partnerships and trusts in the same circumstances in which they apply to corporations.

These will apply for the 2018 and subsequent tax years.

Again, as we’ve mentioned in previous blogs, we will continue to give more information and updates regarding these proposed measures. If you have any questions, please let us know!

Source: http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.pdfRead More]]>info@kdprofessional.ca (KD Professional)Canadian Government News and UpdatesWed, 16 Aug 2017 16:11:00 -0600Proposed Measures to Address Income Sprinkling, Part 1http://kdprofessional.ca/blog/proposed-measures-to-address-income-sprinkling-part-1
http://kdprofessional.ca/blog/proposed-measures-to-address-income-sprinkling-part-1For the past few weeks, we’ve already covered a lot of the developments surrounding the latest Government announcement regarding their proposed changes to address tax planning strategies used by private corporations. As promised, we will look into each tax planning strategy to let you know more about what exactly these proposed measures entail.

We’ll start with the first tax planning strategy which is Income Sprinkling. According to the Department of Finance, income sprinkling describes a range of tax planning arrangements that result in income that, in the absence of the particular arrangement, would have been taxed as income of a high-income individual, but is instead being taxed as income of another lower-income individual, typically of a family member of the high income individual.

The current tax rules, as mentioned by the Department of Finance, have proven effective in responding to some, but not all, forms of income sprinkling. And this is where the proposed measures come in.

The Government proposes these following measures to ensure that all forms of income sprinkling are addressed:

1.Extension of the tax on split income (TOSI) rules:

Currently, the TOSI rules apply to a specified individual’s split income for a taxation year. A specified individual refers to a Canadian resident who is under the age of 17 before the beginning of the year and has a parent who resides in Canada. The proposed measures would expand the meaning of “specified individual” to include Canadian residents whether minor or adult, who receive split income.

The proposed measures will also introduce a reasonableness test to determine whether TOSI applies to a specified individual who is an adult. An amount would not be considered reasonable in the context of the business to the extent that it exceeds what an arm’s-length party would have agreed to pay to the adult specified individual, considering the following factors: labour contributions, capital contributions and previous returns or remuneration.

The proposed measures will also introduce the definition of a “connected individual” to determine whether an adult specified individual’s income from a corporation would be treated as being split income. A Canadian resident individual with a certain measure of influence over a corporation would be treated as connected with the corporation.

These proposed measures would generally apply for the 2017 and later taxation years.

There are 2 more proposed measures to address income sprinkling. We’ll continue on our next blog!

You have given an employee a benefit if you as an employer pay for or give something that is personal in nature directly to your employee or to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child or sibling).

What is a benefit? A benefit is a good or service you give or arrange for a third party to give, to your employee such as free use of property you own. It also includes an allowance or a reimbursement of an employee’s personal expense.

An allowance is a limited amount decided in advance that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having him or her support the expenses.

A reimbursement is an amount you pay to your employee to repay actual expenses he or she incurred while carrying out the duties of employment.

As an employer, you have the responsibility to:

-Determine if the benefit is taxable – whether or not the benefit is taxable depends on its type and the reason an employee or officer receives it. -Calculate the value of the benefit – once you determine that the benefit is taxable, you need to calculate the value of the specific benefit which is generally its fair market value. -Calculate payroll deductions – after you calculate the value of the benefit including any taxes that may apply, add this to the employee’s income for each pay period or when the benefit is receive or enjoyed. This gives you the total amount of income from which you have to make payroll deductions. -File an information return – as an employer, you must report the value of the taxable benefit or allowance on a T4 slip.

Remember, if you need further assistance in performing your tax obligations as an employer, let KD know! Contact us today!

When this announcement came out, we knew that the proposed changes will affect many business owners. Many of the small business owners will most likely pay higher taxes in the years to come if these proposed measures to address the 3 common and for now, legal tax strategies are implemented. If you are one of these business owners who will be affected, please do read on and check our blogs regularly to learn more about these proposed tax measures.

To start, let’s look at what the Department of Finance presents as basis for their need for action on these tax planning strategies.

Basically, the Department of Finance says that they are losing a significant amount of revenue to these tax planning strategies and that these strategies enable some owners of private corporations to gain unfair tax advantages.

Over the past years, we have seen a significant increase in the use of private corporations.

-The number of Canadian-controlled private corporations (CCPCs) has increased substantially from 1.2 million in 2001 to 1.8 million in 2014.

-It is also important to note that there have been an increasing number of self-employed individuals who are choosing to incorporate.

-Right now, CCPCs account for more than twice the share of taxable active business income than they did in the early 2000s.

-The amount of taxable passive investment income earned by private corporations also increased from $8.6 billion in 2002 to $26.8 billion in 2015.

The proposed measures to address income sprinkling will eventually result in additional income for the government to the tune of $250 million per year once fully implemented. The resulting additional revenue from the proposed measures to address the other 2 strategies (holding a passive investment portfolio inside a private corporation and converting a private corporation’s regular income into capital gains) has yet to be provided. The Department of Finance says that this information will be determined once a decision has been made on the final design of the new tax rules.

More one this topic in our future blogs! And as we’ve mentioned in previous blogs, we encourage all those who will be affected by these changes to let your MP know what you think. It is important to let the Government know what these changes will do to our businesses.